Car dealers are grappling with the challenge of depreciating vehicle values. Valuers at Cap HPI pointed to a drop of 4.2% in November. Various underlying factors are contributing to this trend. We take a close look to shed light on the issue.
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Cap HPI’s Director of valuations, Derren Martin, believes traders are facing a fast-moving market. He highlighted how the “market realignment” had seen values fall “by a cumulative 13.6%” in the seven months from April to October. November produced another “reasonably large drop” of 4.2%.
A deep understanding of the market will be crucial for traders in their efforts to overcome this challenging phase.
Why are used car prices falling so fast?
Seasonality – could be at play as values tend to fall in the run-up to Christmas. People concentrate their disposable income elsewhere.
Cost of Living – Though inflation has been sky high for a considerable period and interest rates have rocketed over the last year. Many people’s fixed price mortgages are now far more expensive or will be in the not too distant future. Periods of economic uncertainty often result in cautious spending habits among consumers. The hesitancy to make large financial commitments extends to the automotive sector, influencing buyers to seek more affordable options, further driving down used car prices.
Government Mixed Messages – a significant proportion of the decline in average vehicle values has been due to the drop off in the EV market. Consumer confidence has been denteed by increased energy costs, inability to introduce rapid, reliable charging networks, the removal of subsidies and a delay to the date that a ban on internal combustion engines being sold in the UK.
Market Oversaturation – Demand has dropped at the same point as an influx of used cars into the market, coupled with a surplus of new models following the easing of supply chain issues that have lasted since the pandemic. This has led to a saturation. With more options available, consumers are empowered to negotiate lower prices, putting pressure on the value of pre-owned vehicles.
Plummeting used car prices is a complex puzzle for car dealers. Its various pieces reflect market dynamics, consumer behaviour and other broader economic factors. Car dealers must navigate this rocky landscape with adaptability to reduce the impact on their stock’s value. Innovative strategies to meet the evolving needs of buyers and align with the changing automotive industry trends will be needed. .
Knowing how to react to a fast changing market is a constant pressue. Yet, there is also hope that prices could begin to stabilise early in the New Year. Should car dealers and car supermarkets decide to increase stock levels in large volume with the view that consumers will return in January, that added demand could halt the slide in vehicle values.